6. **Ignore your answer to the previous question and assume that the net initial investment is $600,000.** What is the net present value of the investment, assuming the required rate of return is 12%? (Round to the nearest dollar)a. $10,291 b. $99,693 c. $33,252 d. $28,434 e. $108,730 f. $65,474 g. $20,586 h. None of the above Trestle Corporation is considering purchasing a new finishing machine. Currently, they have an old machine that will remain functional for five years and will have a zero-disposal value at the end, after which it will no longer serve any useful purpose. If Trestle purchases the new machine, the old one can be sold immediately for $95,000, although its book value is $75,000.The cost of the new machine is $635,000. It will be depreciated on a straight-line basis over its useful life of five years for tax purposes. Notably, the new machine will not have a salvage value at the end of its useful life.Additionally, there will be an investment required in working capital, amounting to $25,000, if the new machine is acquired. This investment is projected to result in net cash inflows before tax of $80,000 in the first year and $235,000 in each subsequent year of use. These figures do not take depreciation into account and are recognized at the end of each year. Also, the working capital investment will not be recuperated at the end of the machine's life span.The company's tax rate is 32%.

Correct option is h. None of the above. NPV of the Investment is $63, Year 1 2 3 4 5 Before tax cash net inflow 80,000 235,000 235,000 235,000 235,000 Less: Depreciation ($635,000 / 5 years) 127,000 127,000 127,000 127,000 127,000 Income before taxes -47,000 108,000 108,000 108,000 108,000 Income taxes @ 32% -15,040 34,560 34,560 34,560 34,560 Net income -31,960 73,440 73,440 73,440 73,440 Add: Depreciation 127,000 127,000 127,000 127,000 127,000 After tax cash net inflow 95,040 200,440 200,440 200,440 200,440 Year 0 1 2 3 4 5 Net initial investment -565,000 After tax cash net inflow 95,040 200,440 200,440 200,440 200,440 Total cash flows -565,000 95,040 200,440 200,440 200,440 200,440 Discount factor (12%) 1.000 0.89285 0.79719 0.71178 0.63551 0.56742 Present value -565,000 84,856.46 159788.76 142,669.18 127,381.62 113,733.66 Net present value 63,429.68

Business

Accounting

Trestle Corporation wants to purchase a new finishing machine. They currently have an old machine, which is operable for five more years and is expected to have a zero-disposal value at the end of five years. If the company buys the new machine, the old machine will be sold now for $95,000 (book value is $75,000). The new machine will cost $635,000 and will be depreciated for tax purposes on a straight-line basis over its useful life of 5 years. The new machine will not have a salvage value and will not be sold after its useful life. An additional cash investment in working capital of $25,000 will be required if the new machine is purchased. The investment is expected to net $80,000 in before tax cash inflows during the first year of operation and $235,000 each additional year of use. These cash flows do not include depreciation and are recognized at the end of each year. The working capital investment will not be recovered at the end of the asset's life. The company's tax rate is 32%.

Trestle Corporation wants to purchase a new finishing machine. They currently have an old machine, which is operable for five more years and is expected to have a zero-disposal value at the end of five years. If the company buys the new machine, the old machine will be sold now for $95,000 (book value is $75,000). The new machine will cost $635,000 and will be depreciated for tax purposes on a straight-line basis over its useful life of 5 years. The new machine will not have a salvage value and will not be sold after its useful life. An additional cash investment in working capital of $25,000 will be required if the new machine is purchased. The investment is expected to net $80,000 in before tax cash inflows during the first year of operation and $235,000 each additional year of use. These cash flows do not include depreciation and are recognized at the end of each year. The working capital investment will not be recovered at the end of the asset's life. The company's tax rate is 32%.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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